Southeastern Express Systems v. Southern Guaranty Ins. Co., A066912

• Decision Date: 19 April 1995
• Docket Number: No. A066912,A066912
• Court: California Court of Appeals Court of Appeals
• Parties: SOUTHEASTERN EXPRESS SYSTEMS et al., Plaintiffs and Appellants, v. SOUTHERN GUARANTY INSURANCE COMPANY OF GEORGIA, Defendant and Respondent.

Page 216

40 Cal.Rptr.2d 216

34 Cal.App.4th 1

SOUTHEASTERN EXPRESS SYSTEMS et al., Plaintiffs and Appellants, v. SOUTHERN GUARANTY INSURANCE COMPANY OF GEORGIA, Defendant and Respondent.

No. A066912.

Court of Appeal, First District, Division 1, California.

April 19, 1995.

Rehearing Denied May 18, 1995.

Review Denied July 20, 1995.

Malcolm A. Misuraca, Marlis McAllister, Douglas V. Bartman, Law Offices of Malcolm A. Misuraca, San Francisco, for appellants.

Michael J. Ioannou, Stacey L. Pratt, Ropers, Majeski, Kohn, Bentley, Wagner & Kane, San Francisco, for respondent.

STRANKMAN, Presiding Justice.

A general partnership and its individual general partners, residents of Georgia, sued their insurance company for breach of contract and bad faith insurance practices for refusing to defend a federal case brought in California. The insurance company, a Georgia corporation, obtained an order quashing service of process for lack of jurisdiction. We reverse the order, holding that an insurance company providing commercial liability insurance to an interstate business covering injuries arising from offenses committed in California has purposefully established minimum contacts with the state and may fairly be subjected to litigation in California when denying a duty to defend alleged losses arising here.

STATEMENT OF FACTS

Respondent Southern Guaranty Insurance Company of Georgia is a corporation organized under the laws of Georgia and maintains its principal place of business in Georgia. Respondent has no physical presence in California--neither offices, property, nor bank accounts. Respondent has never been authorized to do business in California, has never filed a California income tax return, and has no agent for service of process here. Appellants are Southeastern Express Systems, a general partnership organized under the laws of Georgia, and its general partners, George Barnes, Kevin Clark, and Gerry Wambolt, all Georgia residents. Southeastern Express Systems sells and services computers and related equipment manufactured by Triad Systems Corporation (Triad) which are used in the management of automotive parts outlets. Southeastern Express Systems services computers in many states, including California.

In April 1992, appellants were sued by Triad in the United States District Court for the Northern District of California. Triad, based in Livermore, California, invoked the federal court's original and diversity jurisdiction over appellants in prosecuting copyright infringement and other claims. Among other allegations, Triad avers that appellants have infringed its computer software copyrights by making and using illegal copies of its software and manuals.

Appellants tendered to respondent the defense and coverage of the Triad action. Respondent insured appellants under general commercial liability policies which appellants claimed covered Triad's copyright infringement action as an advertising injury. ¹ The insurance policies cover advertising injuries for offenses committed in the "coverage territory," defined as "[t]he United States of America (including its territories and possessions), Puerto Rico and Canada." Respondent says it undertook an investigation to determine if coverage existed, although it is not clear what this investigation entailed. Appellants say the investigation consisted of respondent contacting their California counsel in the Triad case and being furnished documents from that case.

Respondent refused to pay appellants' costs of defense and appellants brought this action for breach of contract and bad faith insurance practices in May 1994. Three weeks later, respondent countered by filing its own complaint in Georgia for declaratory relief. Soon after filing the Georgia action, respondent moved to quash service of process in this action, claiming lack of personal jurisdiction. The motion was granted.

DISCUSSION

The issue on appeal is narrow, but important: Is an insurer providing nationwide commercial liability coverage subject to personal jurisdiction in California in an action brought by its insureds alleging a wrongful refusal to defend losses arising in California?

California courts may exercise personal jurisdiction over nonresidents to the full extent permitted by the United States and California Constitutions. (Cornelison v. Chaney (1976) 16 Cal.3d 143, 147, 127 Cal.Rptr. 352, 545 P.2d 264; Code Civ.Proc., § 410.10.) The constitutional guarantee of due process requires that a nonresident subjected to a state's personal jurisdiction have "minimum contacts with it such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.' " (Internat. Shoe Co. v. Washington (1945) 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95, quoting Milliken v. Meyer (1940) 311 U.S. 457, 463, 61 S.Ct. 339, 343, 85 L.Ed. 278.) The relationship among the nonresident defendant, the forum state, and the litigation is the "essential foundation" of personal jurisdiction when a controversy is related to or arises out of a defendant's contacts with the forum. ² (Helicopteros Nacionales de Colombia v. Hall, supra, 466 U.S. at p. 414, 104 S.Ct. at p. 1872.) The defendant's "conduct and connection" with the forum state must be such that "he should reasonably anticipate being haled into court there." (World-Wide Volkswagen Corp. v. Woodson (1980) 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490.) A nonresident corporation has notice that it is subject to out-of state litigation if it " 'purposefully avails itself of the privilege of conducting activities within the forum State.' " (Ibid., quoting Hanson v. Denckla (1958) 357 U.S. 235, 253, 78 S.Ct. 1228, 1239-1240, 2 L.Ed.2d 1283.)

"Purposeful availment" means "an action of the defendant purposefully directed toward the forum State." (Asahi Metal Industry Co. v. Superior Court (1986) 480 U.S. 102, 112, 107 S.Ct. 1026, 1032, 94 L.Ed.2d 92, emphasis omitted.) But "purposeful availment" may be established even if the nonresident defendant maintains no offices, property, or employees in the forum. "[I]f a foreign corporation purposefully avails itself of the benefits of an economic market in the forum State, it may subject itself to the State's in personam jurisdiction even if it has no physical presence in the State." (Quill Corp. v. North Dakota By and Through Heitkamp (1992) 504 U.S. 298, ---- - ----, 112 S.Ct. 1904, 1910-1911, 119 L.Ed.2d 91, citing Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 476, 105 S.Ct. 2174, 2184, 85 L.Ed.2d 528.) A nonresident defendant who has purposefully directed its activities toward the forum state may not defeat personal jurisdiction absent compelling evidence that jurisdiction would be unreasonable. (Burger King Corp. v. Rudzewicz, supra, 471 U.S. at p. 477, 105 S.Ct. at p. 2184-2185; see Asahi Metal Industry Co. v. Superior Court, supra, 480 U.S. at p. 113, 107 S.Ct. at p. 1032-1033 (listing factors relevant to reasonableness determination).) Where a contract between plaintiff and the nonresident defendant is claimed to constitute the necessary "minimum contacts," the exercise of personal jurisdiction is not dictated by the place of contracting or performance, but is guided by a realistic approach which considers the contractual relationship in its totality, including the terms of the contract and the contemplated future consequences of the obligations assumed. (Burger King Corp. v. Rudzewicz, supra, 471 U.S. at pp. 478-479, 105 S.Ct. at pp. 2185-2186.)

Here, respondent wrote an insurance contract obligating it to defend and indemnify advertising injuries for offenses committed by appellants in the "coverage territory," defined as "[t]he United States of America (including its territories and possessions), Puerto Rico and Canada." Respondent sold its policy as one providing nationwide coverage and collected insurance premiums calculated upon that broad coverage, thus deriving benefit from the economic market of all states in which appellants faced potential business liability, including California. Also, respondent agreed to defend appellants against lawsuits in California, and thus should reasonably have anticipated being called into our courts.

We believe it neither unreasonable nor unfair to require an insurer who has assumed the responsibility of defending its insured in California to defend itself when it refuses its insured's defense in a suit brought in California. We recognize that an insurer's defense of a bad faith action may necessitate inconveniences exceeding those attending the defense of an insured, since evidence and witnesses from the insurer's home office may have to be produced in a distant forum to refute the plaintiff's allegation of unfair claims handling practices. But a nonresident defendant's inconvenience rarely achieves constitutional magnitude, and fails to do so here. (Burger King Corp. v. Rudzewicz, supra, 471 U.S. at pp. 477, 483-484, 105 S.Ct. at pp. 2184-2185, 2187-2188.) Considerations of convenience may usually be accommodated through a forum non conveniens dismissal or stay. ³ (Ibid.; Code Civ.Proc., § 410.30; see Stangvik v. Shiley Inc. (1991) 54 Cal.3d 744, 1 Cal.Rptr.2d 556, 819 P.2d 14 (discussing forum non conveniens standards).)

Moreover, once "minimum contacts" have been established, the interests of the plaintiff and the forum often justify even serious burdens imposed upon a nonresident defendant subjected to personal jurisdiction. (Asahi Metal Industry Co. v. Superior Court, supra, 480 U.S. at p. 114, 107 S.Ct. at p. 1033.) Appellants claim California is a convenient forum because they have counsel here familiar with the underlying suit they are defending and will be able to subpoena Triad officers to establish that the underlying action presents claims within appellants' insurance coverage. We note, however, that appellants are not California residents--a fact which diminishes both their interest in a...